Help Centre

THE DISTILLERY: Woolies worries

Jotters are uneasy about Woolworths' strategy, while one rules out a James Murdoch ascension.

No one can escape the downturn in Australian retail, not even Woolworths. The question for management and investors is whether investing in the business and taking on Bunnings is the right strategy when we could be in the midst of a profound restructuring of the entire industry. The Australian Financial Review’s Chanticleer columnist Tony Boyd describes this unease, while the same newspaper’s Matthew Stevens points out that former Woolies boss Michael Luscombe timed his exit to perfection. Also, it appears that James Murdoch is no longer on the path to succeed his father Rupert at the top of News Corp, according to one columnist.

The Australian Financial Review’s Chanticleer columnist Tony Boyd says there’s an uneasy feeling around Woolworths’ continued commitment to spending, the latest of which will be $2 billion on supermarket renovation and taking on Bunnings.

"Investing for the future is going full speed ahead despite evidence that this strategy has failed to deliver in recent years. O’Brien and the Woolies board of directors are firm in their belief that we are in the midst of a cycle that will turn. They do not believe we are in the middle of a fundamental structural change that could make the capital investment a poor use of shareholder funds. The strongest public advocate of the case against investing for the future is put by Merrill Lynch analyst David Errington, who has compiled some persuasive figures to show recent capex has not delivered. Errington is consistent in making the case against wasteful capital expenditure across all the companies he covers."

"Grant O’Brien’s first set of Woolworths numbers identifies the growth challenge ahead for the nation’s biggest retailer just as it underscores how brilliantly predecessor Michael "Two Sheds” Luscombe timed his departure. There is no avoiding the fact that delightful days of double-digit profit growth for Woolworths ended over the final quarters of Luscombe’s reign as price deflation triggered by the Australian dollar’s revaluation and the recovery of competitive pressures in the supermarket sector were amplified by the evaporation of consumer demand. Throw in the supposedly sudden emergence of online retailing as another shaping force and, over fewer than 18 months, the rule book for retailing Australia has been redrafted.”

The Age’sMalcolm Maiden says James Murdoch is not in the running to succeed his father Rupert in the short- to medium-term.

"His role inside News' head office on Sixth Avenue in New York has been more narrowly defined than it was when the move was first announced in March last year. And his candidacy to replace News' chairman and chief executive, his father Rupert, has been sidelined by News' scandal in the United Kingdom. News tapped phones and made what look to be corrupt payments to British officials before James Murdoch took over at News International. But News' insistence that the hacking was not widespread continued while he was there. He was either in charge in the UK and unaware of the extent of the scandal, or aware of it and not responding. Both conclusions undermine him, and News Corp president and chief operating officer Chase Carey will take over as chief executive if Rupert Murdoch steps down in the short-to-medium-term.”

Back to the Woolies' numbers for the remaining business commentaries this morning, The Age’sAdele Ferguson says Woolworths' profit might have suffered this reporting season, but it’s not Australia’s only corporate casualty. The Sydney Morning Herald’sElizabeth Knight touches on similar notes to Boyd, that some investors are getting nervous about the company’s capex. The Australian’s Richard Gluyas says Woolworths is laying some pretty big bets given that it expects a sullen retail environment for the next three years, while the same newspaper’s John Durie argues that Woolworths has some advantages, specifically its size.

And in economic news, The Age’s Tim Colebatch looks at the growing schism between mining investment in Australia and, well, everything else, while The Australian’sAdam Creighton says the word Keynesian is being misused.

IMPORTANT: This information has been prepared without taking into account your objectives, financial situation or needs and you should consider if the information is appropriate for you before making an investment decision. Unless otherwise specifically stated or disclosed (such as the InvestSMART Diversified Portfolios Product Disclosure Statement), neither InvestSMART Financial Services Pty Ltd nor any of its Related Companies make any recommendations as to the merits of any investment opportunity referred to in its emails or its related websites. Product disclosure statements for financial products offered through InvestSMART can be downloaded from this website or obtained by contacting 1300 880 160. You should consider the product disclosure statement before making a decision about the product. All indications of performance returns are historical and can not be relied upon as an indicator for future performance.